Property division and the ABCs of QDROs

| Jan 5, 2016 | Divorce |

Imagine a young couple decides to end their five-year marriage. Bob and Judy have no children and no pets. They do not own a house, and they have kept their finances separate. An inheritance from Judy’s aunt, for example, was not deposited in a joint account, where it would raise issues of commingling marital and non-marital property — in fact, they have no joint account. They both have good jobs, so neither is expecting spousal maintenance.

A quick review of Illinois divorce law leads Bob to the conclusion that there really is no marital property to worry about. Judy, however, has found an important marital asset that Bob has overlooked: His pension.

In Illinois, the portion of pensions and profit-sharing interests earned during the marriage is classified as marital property, even if only one spouse has acquired the benefit. Judy, then, has a right to a portion of Bob’s pension, even if he is not vested.

Determining Judy’s share comprises a three-step process. As is true for marital property in general, the court first determines the present value of the pension, determines the marital interest — remember, only the benefits earned during the marriage are marital property — and then divides the interest between the spouses.

One of the ways a court can divide spousal rights is a qualified domestic relations order, or QDRO. The order details what share of the pension benefits is to be distributed to the nonemployee spouse — in our example, Judy. The order may also include specifics on when Judy will start to receive payments.

The QDRO establishes an interest in the pension plan; it does not order Bob to pay money he has not earned. When Bob reaches retirement age or satisfies a condition of early payment, Judy will begin to receive payments from the plan administrator. She cannot receive payments before Bob becomes eligible. Nor, for that matter, is she entitled to payments before the date the QDRO is signed.

One quick note: The rules are different if the spouse is employed by the state government, a local government or any other entity that participates in the Illinois pension program. Rather than a QDRO, the courts must use a Qualified Illinois Domestic Relations Order in these cases.

Sources:

Illinois Law & Practice, Divorce; Dissolution of Marriage, 16A § 167 Retirement and pension benefits, via WestlawNext

U.S. Department of Labor, Employee Benefits Security Administration/ERISA, Qualified Domestic Relations Orders Frequently Asked Questions accessed Jan. 4, 2016

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